I’m a trading floor manager and an adjunct finance lecturer at the Ross School of Business, where I teach a class on “Applied Quant/Value Portfolio Management”. I’m featured in Matthew Schifrin’s book, The Warren Buffetts Next Door. I teach students about quant screening, valuation, and portfolio management, and so my skills were initiated by professors, fine-tuned by students and disciplined through time. I’ve had articles in Forbes, MoneyShow.com, Welt Am Sonntag, the San Francisco Chronicle, Santa Cruz Sentinel, MSN Money, the Globe and Mail, and many others. I climb ice in the winter and I love Finnish saunas, Ann Arbor, ‘Go Blue’ and the National Parks. I’m not a fan of local unsolved oil spills. I’m a huge fan of FactSet, but I screen for stocks at home with Stock Investor Pro from AAII. I’m a Marketocracy Master whose portfolio is available to clients in a managed account program.

Ann Arbor SPARK got a grant on Oct. 16th, 2006 for $8,000,000 (Page 4). It was reportedly leveraged to $132,694,383 and it created 29 licensing agreements and 16 companies. However, it only created 130.6 net full-time jobs and none of the licensing agreements were with Michigan-based Companies. There is a ‘Projected new job growth’ of 645 employees, but that number is not confirmed and it is taken from the projected job numbers. The job numbers are taken from the:

Original proposals submitted to the Michigan Economic Development Corporation (MEDC) by the entities that received funds.

In other words, of the 645 projected jobs, only 20% were actually created and the proposed job numbers were inflated.

Ann Arbor SPARK’s Pre-Seed Capital Fund II got a grant on July 2nd, 2009 for $6,800,000 (Page 14). It was reportedly leveraged to $40,486,960 and it created 17 licensing agreements and 21 new companies. There was a ‘Projected new job growth’ of 2,162 employees. As mentioned earlier, keep in mind that this projected job growth was not confirmed, but was taken from the original proposal submitted to the MEDC. On pages 14 to 16, it shows how 121 current jobs were created and 72 of those were still in Michigan. Of the estimated projected jobs to be created; only 5.6% were actually created. And of the jobs that were created, 59.5% of them were still in Michigan. To put it in another perspective, of the jobs that were forecasted, only 3.3% were created and stayed in Michigan. None of the licensing agreements were with Michigan companies.

Ann Arbor SPARK’s Pre-Seed Capital Fund III got a grant on Oct. 7th, 2011 for $10,170,000 (Page 14). It was reportedly leveraged to $21,521,992 and it created 0 licensing agreements and 25 new companies. This had a ‘Projected new job growth’ of 2,288 employees. Also, this projected job growth was not confirmed, but was taken from the original proposal submitted to the MEDC. On pages 14 to 16, it shows how 183 current jobs were created, and 122.5 of those were in Michigan. That means that of the projected jobs to be created; only 8.0% were actually created. And of the jobs that were created, 66.9% of them stayed in Michigan. To put it in another perspective, of the jobs that were forecasted, only 5.4% were created and stayed in Michigan.

According to the official document, Ann Arbor SPARK helped 64 companies with $2,780,150 in microloans. But, to avoid double-counting the firms I removed those that received funding from SPARK via the Pre-Seed funds as well. So although 64 companies were helped by SPARK, only 54 companies would count. In total, 102 jobs were created. It should be noted that many of the microloans in the state report were placed with companies in Ann Arbor.

Ann Arbor SPARK’s, Michigan Angel Fund got a grant on July 27, 2011 for $600,000 (Page 17). It was reportedly leveraged to $820,000 and it created 33 licensing agreements, 11 new companies, 0 new jobs. Oddly, although 11 companies were created, no new jobs were created. Of the 33 licensing agreements, 0 were placed with Michigan-based companies and the report notes a projected new job growth of 0.

The Ann Arbor SPARK Accelerate Michigan Innovation Competition got a grant on July 27, 2011 for $1,050,000 (Page 17). It was reportedly leveraged to $30,380,000 and it created 9 licensing agreements, 2 new companies, and 94 new jobs. Of the 9 licensing agreements, only 1 license was in a Michigan-based company.

SPARK claims that they created 13,024 new jobs, $1.5 billion in investment and 547 companies, but the official state report shows 711 jobs, $229 million in investment and 149 companies.

SPARK Responds

I reached out to SPARK and the MEDC for a comment and neither one has responded directly. However on June 16th, Paul Krutko, the CEO of SPARK addressed this topic to City Council in Ann Arbor Michigan. Prior to his comments, I made a public comment at City Council and that comment can be viewed here.

Krutko responded to my investigation as,

a member of the public who has made some assertions about a report

I should note that my assertions have been based on research and an official jobs report. I am a quant and I look at data and how it reflects public companies and public non-profits. If the official job report, a job report that is required by an Act is incorrect, then the appropriate officials should be notified. This investigation has been difficult as I’ve faced numerous ‘Hoffa’ comments and at least one job-threat. But, it’s an important issue, as non-profit-venture capital entities should be held accountable when they are seeking public money. And it is especially troubling if those non-profits are giving inflated numbers to tax-payers. To me, this is an issue about ethics and it’s about doing ‘what is right’.

In SPARK’s latest financial audit, they state that all investments at SPARK were located in Washtenaw County companies. It should also be noted that in the latest audit, a detailed breakdown of the micro-loans that SPARK provided is excluded. This particular breakdown in the micro-loans was provided in the audit from the previous year, so the exclusion of the micro-loan detail is troubling. The latest audit makes no mention as to why the micro-loan detail was excluded. The latest audit stated:

The Organization’s investments are all in start-up companies located in Washtenaw County.

At City Council, Krutko defended the audit, but he also confirmed that investments are located outside of Washtenaw County. His statement appeared to contradict the audit’s statement that all investments are within Washtenaw County.

Krutko stated to Ann Arbor City Council:

Two of my colleagues were up in Livingston County tonight, and Livingston County has approved an increase in funding to SPARK because of the activities that we do up there

The report reflects the activities what we do with the state of Michigan under a contract with the state of Michigan for activities throughout the entire state of Michigan

The audit covers all of the investments that we make with the state

If the assertion becomes that we are hiding something from you or misrepresenting information, we’re not. Our audit just came back, the highest opinion that you can get for an audit. It is clean.

With respect to the official report, Krutko stated that the official report to the Governor does not include the business development in Ann Arbor. However, his statement is puzzling to me, as the official state report covers micro-loans that were given to companies within Ann Arbor by SPARK. In reference to the official report and how it may exclude some jobs, Krutko stated:

There isn’t any data about our business development activities in Ann Arbor in there because that’s not germane to what the state was reporting.

With respect to the idea that SPARK is using projected job numbers instead of actual job numbers as it seeks public funding, Krutko confirmed this idea in his public comments to city council:

We provide to you what the company tells us they’re going to do in Ann Arbor on the basis of them moving forward with the project — that is their capital investment and what they say they’re going to do in terms of jobs

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